ACCA Applied Knowledge · Financial Accounting · Capital structure and finance costs
Which statement about a bonus issue of shares is correct?
A bonus issue converts reserves into share capital without changing total equity. The entry debits a reserve and credits share capital, and no cash is received, so net assets and total equity stay the same.
- AIt raises new cash for the company
- BIt reduces the company's total equity
- CIt increases total equity by the nominal value of the shares issued
- DIt converts reserves into share capital without changing total equityCorrect
Explanation
A bonus issue capitalises reserves: debit a reserve (such as share premium or retained earnings), credit share capital. Total equity is unchanged and no cash is received. The statement that equity rises is wrong because no resources enter the company.
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